ANSWER: A) Wealth Maximization

.
The only feasible purpose of financial management is
a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Assets maximization
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ANSWER: a) Wealth Maximization
2. Financial management process deals with
a) Investments
b) Financing decisions
c) Both a and b
d) None of the above
ANSWER: b) Financing decisions
3. Agency cost consists of
a) Binding
b) Monitoring
c) Opportunity and structure cost
d) All of the above
ANSWER: d) All of the above
4. Finance Function comprises

a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds
ANSWER: d) Procurement & effective use of funds
5. The objective of wealth maximization takes into account
a) Amount of returns expected

b) Timing of anticipated returns
c) Risk associated with uncertainty of returns
d) All of the above
6. Financial management mainly focuses on
a) Efficient management of every business

b) Brand dimension
c) Arrangement of funds
d) All elements of acquiring and using means of financial resources for financial activities
ANSWER: d) All elements of acquiring and using means of financial resources for
financial activities
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Time Value Of Money - MCQs with answers

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Time Value Of Money - MCQs with answers
1. Time value of money indicates that
a) A unit of money obtained today is worth more than a unit of money obtained in future
b) A unit of money obtained today is worth less than a unit of money obtained in future
c) There is no difference in the value of money obtained today and tomorrow
ANSWER: a) A unit of money obtained today is worth more than a unit of money
obtained in future
2. Time value of money supports the comparison of cash flows recorded at different time
period by
a) Discounting all cash flows to a common point of time

b) Compounding all cash flows to a common point of time
c) Using either a or b
d) None of the above.
ANSWER: c) Using either a or b
3. If the nominal rate of interest is 10% per annum and there is quarterly compounding,
the effective rate of interest will be:
a) 10% per annum

b) 10.10 per annum
c) 10.25%per annum
d) 10.38% per annum
ANSWER: d) 10.38% per annum
4. Relationship between annual nominal rate of interest and annual effective rate of
interest, if frequency of compounding is greater than one:
a) Effective rate > Nominal rate

b) Effective rate < Nominal rate
c) Effective rate = Nominal rate

ANSWER: a) Effective rate > Nominal rate
5. Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is 10% per
annum. The first installment will be paid at the end of year 5. Determine the amount of
equal annual installments if Mr. X wishes to repay the amount in five installments.
a) Rs 19500
b) Rs 19400
c) Rs 19310
ANSWER: c) Rs 19310
6. If nominal rate of return is 10% per annum and annual effective rate of interest is
10.25% per annum, determine the frequency of compounding:
a) 1
b) 2
c) 3
ANSWER: b) 2
7. Present value tables for annuity cannot be straight away applied to varied stream of
cash flows.
a) True
b) False
ANSWER: a) True
8. Heterogeneous cash flows can be made comparable by
a) Discounting technique
b) Compounding technique
c) Either a or b
ANSWER: c) Either a or b
1. Risk of two securities with different expected return can be compared with:
a) Coefficient of variation
b) Standard deviation of securities
c) Variance of Securities

ANSWER: a) Coefficient of variation
2. A portfolio having two risky securities can be turned risk less if
a) The securities are completely positively correlated

b) If the correlation ranges between zero and one
c) The securities are completely negatively correlated
ANSWER: c) The securities are completely negatively correlated
3. Efficient frontier comprises of
a) Portfolios that have negatively correlated securities

b) Portfolios that have positively correlated securities
c) Inefficient portfolios
d) Efficient portfolios
ANSWER: d) Efficient portfolios
4. Efficient portfolios can be defined as those portfolios which for a given level of risk
provides
a) Maximum return
b) Average return
c) Minimum return

ANSWER: a) Maximum return
5. Capital market line is:
a) Capital allocation line of a market portfolio

b) Capital allocation line of a risk free asset
c) Both a and b
ANSWER: c) Both a and b
6. CAPM accounts for:
a) Unsystematic risk
b) Systematic risk
c) Both a and b
ANSWER: b) Systematic risk
7. The point of tangency between risk return indifferences curves and efficient frontier
highlights:
a) Optimal portfolio
b) Efficient portfolio
c) Sub-optimal portfolio

ANSWER: a) Optimal portfolio
8. A portfolio comprises two securities and the expected return on them is 12% and 16%
respectively. Determine return of portfolio if first security constitutes 40% of total
portfolio.
a) 12.4%
b) 13.4%
c) 14.4%
d) 15.4%
ANSWER: c) 14.4%
9. A risk free security has zero variance.
a) True
b) False
ANSWER:
10. Return on any financial asset consists of capital yield and current yield.
a) True
b) False
ANSWER: a) True
11. There is no difference between the capital market line and security market line as
both the terms are same.
a) True
b) False
ANSWER: b) False
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Valuation of Bonds & Shares - MCQs with

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Valuation of Bonds & Shares - MCQs with answers
1. The value of a bond and debenture is
a) Present value of interest payments it gets

b) Present value of contractual payments it gets till maturity
c) Present value of redemption amount

ANSWER: b) Present value of contractual payments it gets till maturity
2. Required rate of return>Coupon rate, the bond will be valued at
a) Premium
b) Par value
c) Discount
ANSWER: c) Discount
3. If the coupon rate is constant, the value of bond when close to maturity will be
a) Issued value
b) Par value
c) Redemption value
d) All of the above
4. A bond is said to be issued at premium when
a) Coupon rate>Required returns

b) Coupon rate=Required returns
c) Coupon rate
ANSWER: a) Coupon rate>Required returns
5. Value of a bond just depends on the interest payment is offers.
a) True
b) False
ANSWER: b) False
6. In a variable growth model, the dividend is believed to grow at a constant pace forever
after an initial growth period.
a) True
b) False
ANSWER: a) True
7. For a bond YTM is always equal to coupon rate.

a) True
b) False
ANSWER: b) False
1. When the concept of ratio is defined in respected to the items shown in the financial
statements, it is termed as
a) Accounting ratio
b) Financial ratio
c) Costing ratio
ANSWER: a) Accounting ratio
2. The definition, “The term accounting ratio is used to describe significant relationship
which exist between figures shown in a balance sheet, in a profit and loss account, in a
budgetary control system or in a any part of the accounting organization” is given by
a) Biramn and Dribin

b) Lord Keynes
c) J. Betty
ANSWER: c) J. Betty
3. The relationship between two financial variables can be expressed in:

a) Pure ratio
b) Percentage
c) Rate or time
d) Either of the above
ANSWER: d) Either of the above
4. Liquidity ratios are expressed in
a) Pure ratio form

b) Percentage
c) Rate or time
ANSWER: a) Pure ratio form
5. Which of the following statements are true about Ratio Analysis?
A) Ratio analysis is useful in financial analysis.

B) Ratio analysis is helpful in communication and coordination
C) Ratio Analysis is not helpful in identifying weak spots of the business.
D) Ratio Analysis is helpful in financial planning and forecasting.
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
ANSWER: a) A, B and D
6. The ratio analysis is helpful to management in taking several decisions, but as a
mechanical substitute for judgment and thinking, it is worse than useless.
a) True
b) False
ANSWER: a) True
7. Profit for the objective of calculating a ratio may be taken as
a) Profit before tax but after interest

b) Profit before interest and tax
c) Profit after interest and tax
d) All of the above
8. Which of the following are limitations of ratio analysis?
A) Ratio analysis may result in false results if variations in price levels are not considered.
B) Ratio analysis ignores qualitative factors
C) Ratio Analysis ignores quantitative factors
D) Ratio Analysis is historical analysis.
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
ANSWER: a) A, B and D
1. Which of the following falls under Profitability ratios?
A) General Profitability ratios

B) Overall Profitability ratios
C) Comprehensive Profitability ratios
a) A and B
b) A and C
c) B and C
ANSWER:a) A and B
2. General Profitability ratios are based on
a) Investments
b) Sales
c) a & B
ANSWER: b) Sales
3. Gross Profit ratio is also termed as
a) Gross Profit Margin

b) Gross Margin to net sales
c) Both a and b
d) All of the above
4. While calculating Gross Profit ratio,
a) Closing stock is deducted from cost of goods sold

b) Closing stock is added to cost of goods sold
c) Closing stock is ignored
ANSWER: a) Closing stock is deducted from cost of goods sold
5. While calculating Gross Profit, if net profit is given,
a) It can be converted into gross profit by adding interest to it

b) It can be converted into Gross profit by adding indirect expenses to it
c) Both a and b
ANSWER: a) It can be converted into gross profit by adding interest to it
6. Gross profit ratio is calculated by
a) (Gross Profit/Gross sales)*100

b) (Gross Profit/Net sales)*100
c) (Net Profit/Gross sales)*100
ANSWER: b) (Gross Profit/Net sales)*100
7. Given Sales is 1, 20,000 and Gross Profit is 30,000, the gross profit ratio is
a) 24%
b) 25%
c) 40%
d) 44%%
ANSWER: b) 25%
8. What will be the Gross Profit if, total sales is Rs 2,60,000 Cost of net goods sold is Rs
2,00,000 and Sales return is Rs 10,000?
a) 13%
b) 28%
c) 26%
d) 20%
ANSWER: d) 20%
9. If selling price is fixed 25% above the cost, the Gross Profit ratio is
a) 13%
b) 28%
c) 26%
d) 20%
ANSWER: d) 20%
10. Gross Profit ratio should be adequate to cover
a) Selling expenses
b) Administrative expenses
c) Dividends
d) All of the above
ANSWER:d) All of the above
1. Net Profit ratio is calculated by
a) (Gross Profit/Gross sales)*100

b) (Gross Profit/Net sales)*100
c) (Net Profit/Net sales)*100
ANSWER: c) (Net Profit/Net sales)*100
2. If sales is Rs 5, 00,000 and net profit is Rs 1, 20,000 Net Profit ratio is
a) 24%
b) 416%
c) 60%
ANSWER: a) 24%
3. If sales is Rs 10,00,000, sales returns is Rs 50,000, Profit Before Tax is Rs 2,00,000,

Income tax is 40%, Net profit ratio is
a) 12.63%
b) 20%
c) 10%
d) 50%
ANSWER: a) 12.63%
4. Net operating profit ratio determines ___________ while net profit ratio determines
a) Overall efficiency of the business, working efficiency of the management
b) Working efficiency of the management, overll efficiency of the business
c) Overall efficiency of the external market, working efficiency of the internal management
ANSWER:b) Working efficiency of the management, overll efficiency of the business
5. Operating ratio is calculated by
a) (Operating Cost/Gross sales)*100

b) (Operating Cost/Gross sales)*100
c) (Operating cost/Net sales)*100
ANSWER: c) (Operating cost/Net sales)*100
6. Determine Operating ratio, if operating expenses is Rs 60,000, Sales is Rs 9,40,000,

Sales Return is Rs 40,000 and Cost of net goods sold is Rs 6,60,000.
a) 80%
b) 15%
c) 25%
d) 11%
ANSWER: a) 80%
7. Which of the following is expenses ratio?
A) Administrative expenses ratio

B) Selling and Distribution expenses ratio
C) Factory expenses ratio
D) Finance Expenses ratio
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
ANSWER: d) A, B , C, D
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Ratio Analysis - Overall Profitability Ratios: Net

Profit ratio - MCQs
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Ratio Analysis - Overall Profitability Ratios: Net Profit ratio

- MCQs
1. Overall Profitability ratios are based on
a) Investments
b) Sales
c) a & B
ANSWER: a) Investments
2. Return on Proprietors’ funds is also known as:
a) Return on net worth

b) Return on Shareholders’ fund
c) Return on Shareholders’ Investment
d) All of the above
3. Return on equity capital is calculated on basis of:
a) Funds of equity shareholders

b) Equity capital only
c) Either a or b
4. While calculating Earnings per share, if both equity and preference share capitals are
there, then
a) Preference share is deducted from the net profit

b) Equity share capital is deducted from the net profit
c) Both a and b

ANSWER: a) Preference share is deducted from the net profit
1. Turnover ratios are also known as
a) Activity ratios
b) Performance ratios
c) Both a and b
2. The lower turnover ratio highlights the under utilizations of the resources accessible at
the disposal of the firm.
a) True
b) False
ANSWER: a) True
3. Stock velocity established a relationship between
a) Cost of goods sold in a given period and the average amount of inventory held during that
period.
b) Cost of goods sold in a given period and the average amount of stock held during that period.
c) Both a and b

4. Determine stock turnover ratio if, Opening stock is Rs 31,000, Closing stock is Rs
29,000, Sales is Rs 3,20,000 and Gross profit ratio is 25% on sales.
a) 31 times
b) 11 times
c) 8 times
d) 32 times
ANSWER: c) 8 times
5. Debtors Turnover ratio is also known as
A) Receivables turnover ratio

B) Debtors velocity
C) Stock velocity
D) Payable turnover ratio
a) A and B
b) A and C
c) B and C
d) C and D
ANSWER: a) A and B
6. Determine Debtors turnover ratio if, closing debtors is Rs 40,000, Cash sales is 25% of
credit sales and excess of closing debtors over opening debtors is Rs 20,000.
a) 4 times
b) 2 times
c) 6 times
d) 8 times
ANSWER:a) 4 times
7. Working capital turnover ratio can be determined by:
a) (Gross Profit/Working capital)

b) (Cost of goods sold/Net sales)
c) (Cost of goods sold/Working capital)
ANSWER: c) (Cost of goods sold/Working capital)
8. Determine Working capital turnover ratio if, Current assets is Rs 1,50,000, current
liabilities is Rs 1,00,000 and Cost of goods sold is Rs 3,00,000.
a) 5 times
b) 6 times
c) 3 times
d) 1.5 times
ANSWER: b) 6 times
1. Which ratio is considered as safe margin of solvency?
a) Liquid ratio
b) Quick ratio
c) Current ratio
ANSWER: c) Current ratio
2. The ideal level of current ratio is
a) 4:2
b) 2:1
c) Both a and b
3. Current ratio is stated as a crude ratio because
a) It measures only the quantity of current assets

b) It measures only the quality of current assets
c) Both a and b
d) Offerings dimension
ANSWER: a) It measures only the quantity of current assets
4. Liquid ratio is also known as
a) Quick ratio
b) Acid test ratio
c) Working capital ratio
d) Stock turnover ratio
a) A and B
b) A and C
c) B and C
d) C and D
ANSWER: a) A and B
5. Stock is considered as a liquid asset as anytime it can be converted into cash

immediately.
a) Yes
b) No
ANSWER: b) No
6. The ideal level of liquid ratio is
a) 3:3
b) 4:4
c) 5:5
d) All of the above
ANSWER: a) 3:3
7. Debt-equity ratio is a sub-part of
a) Short-term solvency ratio

b) Long-term solvency ratio
c) Debtors turnover ratio

ANSWER: b) Long-term solvency ratio
8. Liquid assets is determined by
a) Current assets-stock-Prepaid expenses

b) Current assets +stock+ prepaid expenses
c) Current assets +Prepaid expenses
ANSWER: a) Current assets-stock-Prepaid expenses
9. Which of the following is not included in current assets?
a) Debtors
b) Stock
c) Cash at bank
d) Cash in hand
ANSWER: b) Stock
10. Higher the ratio, the more favorable it is, doesn’t stands true for
a) Operating ratio
b) Liquidity ratio
c) Net profit ratio
d) Stock turnover ratio
ANSWER: a) Operating ratio

11. The most precise test of liquidity is
a) Quick ratio
b) Current ratio
c) Absolute Liquid ratio
ANSWER: c) Absolute Liquid ratio
12. Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs 60,000.
Determine value of stock.
a) Rs 54,000
b) Rs 60,000
c) Rs 1, 62,000
ANSWER: a) Rs 54,000
13. Collection of debtors
a) Decreases current ratio

b) Increases current ratio
c) Has no effect on current ratio
ANSWER: a) Decreases current ratio
1. Which of the following statement is true about Funds Flow Statement?
A) It highlights change in funds of a firm at different point

B) It highlights change in funds of different firms at a single point
C) It highlights change in funds of different firms at different point
D) It doesn’t highlights change in funds
a) Only A
b) Only B
c) Only D
d) A, B , C, D
2. In the context of Funds Flow Analysis, the word “funds” is used to define
a) Net Working capital

b) Total current assets-Total current liabilities
c) Both a and b
3. Which of the following is/are examples of Funds Flow Statement?
A) Collection of debtors
B) Shares issued for cash
C) Shares issued against the purchase of machinery
D) Shares issued for property
a) A and B
b) A and C
c) A and D
d) A, B, C and D
ANSWER: a) A and B
4. Which of the following statement/s are true about movement of funds?
A) Funds flow in a transaction between current assets and fixed assets.
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Rules of Funds Flow Statement - MCQs

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Rules of Funds Flow Statement - MCQs
1. Which of the following statement is true about Funds Flow Statement?
A) It highlights change in funds of a firm at different point

B) It highlights change in funds of different firms at a single point
C) It highlights change in funds of different firms at different point
D) It doesn’t highlights change in funds
a) Only A
b) Only B
c) Only D
d) A, B , C, D

2. In the context of Funds Flow Analysis, the word “funds” is used to define
a) Net Working capital

b) Total current assets-Total current liabilities
c) Both a and b
3. Which of the following is/are examples of Funds Flow Statement?
A) Collection of debtors
B) Shares issued for cash
C) Shares issued against the purchase of machinery
D) Shares issued for property
a) A and B
b) A and C
c) A and D
d) A, B, C and D
ANSWER: a) A and B
4. Which of the following statement/s are true about movement of funds?
A) Funds flow in a transaction between current assets and fixed assets.
B) Funds flow in a transaction between current asset and capital
C) Funds flow in a transaction between fixed assets and current liabilities

D) Funds flow in a transaction between current liabilities and capital
a) A and B
b) A and C
c) A and D
d) A, B, C and D
ANSWER: d) A, B, C and D
5. Which of the following transactions will result in inflow of funds?
A) Issue of debentures
B) Conversion of debentures into equity shares
C) Redemption of long term loan
D) Creation of General Reserve
a) Only A
b) Only D
c) A and D
d) A, B, C and D
ANSWER: a) Only A
6. During the year, a business was bought by issue of Rs 25,000 debentures and Rs
25,000 shares. The business bought had machine worth Rs 20,000, Debtors Rs 15,000,
Stock Rs 5,000 and Creditors Rs 5,000. Determine the effect of this transaction on flow of
funds.
a) Net outflow of Rs 15,000

b) Net inflow of Rs 15,000
c) Neither inflow nor outflow
ANSWER: b) Net inflow of Rs 15,000
7. Which of the following are current assets?
A) Fixed investments
B) Trade Payables
C) Short-term loans and advances
D) Furniture
a) Only A
b) Only B
c) Only C
d) A, B, C and D
ANSWER: c) Only C
8. Which of the following are Non-current assets?
a) Land, Building and plant

b) Leasehold property
c) Computer software
d) All of the above
9. Bond, debentures and term loans falls under:
a) Current assets
b) Non-current assets
c) Non-current liabilities
d) Current liabilities
ANSWER: c) Non-current liabilities

10. Funds flow statements are prepared so as to
a) To identify the changes in working capital

b) To identify reasons behind change in working capital
c) To know the item-wise outflow of funds during given period
d) All of the above
11. Funds Flow Statement holds significance for
a) Shareholders
b) Financiers
c) Government
d) All of the above
1. Which statement is prepared in the process of funds flow analysis?
a) Schedule of changes in working capital

b) Funds Flow Statement
c) Both a and b

ANSWER: a) Schedule of changes in working capital
2. Funds Flow Statement is prepared on the basis of data of P&L statement and two
consecutive balance sheets.
a) True
b) False
c) Value delivery
ANSWER: a) True
3. Which of the following rules stands true while preparation of Schedule of changes in
working capital?
A) An increase in current assets increases working capital.

B) An increase in current assets decreases working capital.
C) An increase in current liabilities decreases working capital.
D) An increase in current liabilities increases working capital
a) A and C
b) A and D
c) B and D
d) A, B, C and D
ANSWER: a) A and C
4. If reserve for bad and doubtful debts is mentioned in the question of Funds Flow
Statement Preparation, it can be shown as
a) In the schedule by deducting from total debtors under current assets

b) In the schedule separately under the heading of capital liabilities
c) Both a & b
ANSWER: c) Both a & b
5. Funds Flow Statement is also known as
a) Statement of Funds Flow

b) Statement of Sources and Application of Funds
c) Statement of Sources and Uses of Funds
d) All of the above
6. Given Net profit for the year Rs 2, 50,000 Transferred to general reserves Rs 40,000
and old machinery bought for Rs 50,000 was sold for Rs 20,000. Calculate funds from
operations.
a) Rs 2, 80,000
b) Rs 2, 20,000
c) Rs 2, 90,000
d) Rs 3, 00,000
ANSWER: a) Rs 2, 80,000
7. Which of the following are sources of funds?
A) Issue of bonus shares

B) Issue of shares against the purchase of fixed assets
C) Conversion of debentures into shares
D) Conversion of loans into shares
a) A and C
b) A and D
c) A, B, C and D
ANSWER: d) None of the above
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Funds Flow Statement Practicals - MCQs with

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Funds Flow Statement Practicals - MCQs with answers
1. The share capital of A Ltd. stood at Rs 20,00,000 in 2013 and at Rs 26 lac in 2014. As
per records, the company bought asset of another company for Rs 6 lac payable in fully
paid shares. These assets included Goodwill Rs 2,00,000 Machinery Rs 1, 83, 600 and
Stock Rs 2,16,400. What is the fund from issue of shares?
a) Rs 2,15,600
b) Rs 2,16,400
c) Rs 2,00,000
ANSWER: b) Rs 2,16,400
2. Debentures are Rs 2,50,000 and Rs 3,50,000 in the balance sheet of 2013 and 2014.
1000 of the debentures of Rs 100 each were issued at par in 2014 of which 400
debentures were issued to a supplier for the purchase of a machine. Determine amount
of issue for debentures for the purpose of funds flow statement.
a) Rs 60,000
b) Rs 40,000
c) RS 10,000
3. In the balance sheet of Praveen for 2013 and 2014, 4% debentures are Rs 5,00,000 and
Rs 4,00,000, respectively. Profit on redemption of debentures in 2013 is nil while in 2014
is Rs 4,000. What is the amount of redemption for the purpose of funds flow statement?
a) Rs 96,000
b) Rs 1,04,000
c) Rs 9,00,000
d) Rs 9,04,000
4. The balance of property at cost has been RS 20,000 and Rs 17,000 in 2013 and 2014
respectively. The profit on sale of property of Rs 2000 is credited to Capital Reserves
Account. New property costing Rs 5000 bought in 2014. Determine sale of proceeds from
land.
a) Rs 3000
b) Rs 10,000
c) Rs 7000
d) Rs 15,000
ANSWER: b) Rs 10,000
5. The Balance sheet of Ram at end of 2013 and 2014 disclose investments in shares of
Rs 2000 and Rs 3000, respectively. Rs 100 as pre-acquisition dividend has been credited
to investments account. Determine purchase of investments.
a) RS 5000
b) Rs 1000
c) Rs 1,100
ANSWER: c) Rs 1,100
6. The balance of fixed assets of Y Ltd. at cost at the end of 2013 and 2014 were Rs
5,70,800 and Rs 6,15,300. During the year 2014 a machinery costing Rs 60,000 was sold.
Determine the purchase of fixed assets.
a) Rs 1,04,500
b) Rs 1,40,500
c) Rs 1,64,500
ANSWER: a) Rs 1,04,500
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Concepts In Preparation of Fund Flow Statement -

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Concepts In Preparation of Fund Flow Statement - MCQs
1. Which of the following are applications of funds?
a) Payment of dividend on share capital

b) Payment of tax
c) Increase in working capital
d) All of above
ANSWER: d) All of above
2. Which of the following are treated as long term investments?
a) Non-current investments
b) Trade Investments
c) Sinking fund investments
d) All of the above
3. Provision of taxation is treated as
a) As a current liability
b) As an appropriation of profits
c) Either a or b
4. As per accounting standard AS3, provision for taxation should be treated as
a) As a current liability
b) As an appropriation of profits
c) Either a or b
ANSWER: b) As an appropriation of profits
5. Which of the following statement is true?
a) If the amount of good will increases during current year, the difference is treated as purchase
of goodwill.
b) If the amount of good will decreases during current year, It will treated as written off.
c) Both a and b
6. The opening and closing balance of general reserves are Rs 10,000 and Rs 9,000,
respectively. It is stated in addition information that a loss of Rs 1000 has been written
off in general reserves. In such a case, decline in reserve and loss on investment will be
adjusted in P&L account.
a) True
b) False
ANSWER: b) False
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Concepts of Cash Flow Statement - MCQs with

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Concepts of Cash Flow Statement - MCQs with answers
1. As per Accounting Standard-3, Cash Flow is classified into
a) Operating activities and investing activities

b) Investing activities and financing activities
c) Operating activities and financing activities
d) Operating activities, financing activities and investing activities
ANSWER: d) Operating activities, financing activities and investing activities

2. Cash Flow Statement is also known as
a) Statement of Changes in Financial Position on Cash basis

b) Statement accounting for variation in cash
c) Both a and b
3. The objectives of Cash Flow Statement are
A) Analysis of cash position

B) Short-term cash planning
C) Evaluation of liquidity
D) Comparison of operating Performance
a) Both A and B
b) Both A and C
c) Both B and D
d) A, B, C, D
ANSWER: d) A, B, C, D
4. In cash flow statement, the item of interest is shown in

A) Operating Activities
B) Financing Activities
C) Investing Activities
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
ANSWER: c) Both B and C
5. Cash Flow Statement is based upon
a) Cash basis of accounting

b) Accrual basis of accounting
c) Credit basis of accounting
ANSWER: a) Cash basis of accounting
6. Which of the following statements are false?
A) Cash Flow Statement is helpful in the formation of policies.

B) Cash Flow Statement is useful for external analysis
C) Cash Flow Statement is helpful in estimating future cash flow
a) Both A and B
b) Both A and C
c) Both B and C
ANSWER: d) None of the above
7. Which of the following statements are true?
A) Cash flow reveals only the inflow of cash

B) Cash flow reveals only the outflow of cash
C) Cash flow is a substitute for income statement
D) Cash flow statement is not a replacement of funds flow statement.
a) Only A
b) Only B
c) Both B and C
d) Only D
ANSWER: d) Only D
1. Cash flow statement is based upon _________ while Funds Flow Statement recognizes
_______.
a) Cash basis of accounting, accrual basis of accounting

b) Accrual basis of accounting, cash basis of accounting
c) Both are based on cash basis of accounting
ANSWER:a) Cash basis of accounting, accrual basis of accounting
2. Statement of changes in working capital is prepared separately in
a) Cash Flow Statement

c) Both a and b
ANSWER: b) Funds Flow Statement
3. Cash Flow Statement studies causes of change in working capital.
a) True
b) False
ANSWER: b) False
4. _________ reconciles the opening cash balance with the closing cash balance of a
given period on the basis of net decrease or increase in cash during that period.
a) Cash Flow Statement

c) Both a and b

ANSWER: a) Cash Flow Statement
A) Cash flow statement is more useful for short term cash planning.
B) Funds Flow statement is more useful in planning medium term and long term financing.
C) Cash Flow statement discloses the position of liquidity in a better way
a) Only A
b) Only B
c) Only C
d) A, B and C
ANSWER: d) A, B and C
6. _____ has/have accepted cash flow statement is more useful than funds flow
statement, particularly from view of analysis of liquidity of a firm.
a) Institute Of Chartered Accountants of India

b) FASB, America
c) SEBI
d) All of the above
1. Cash Flow Statement is prepared from
a) Profit and loss account

b) Balance Sheet
c) Additional Information
d) All of the above

2. Which of the following are cash flow from operating activities?
A) Cash Receipts from customers

B) Cash Paid to Supplier and Employees
C) Purchase of fixed assets
D) Sale of fixed assets
a) Both A and B
b) Both A and C
c) Both B and C
d) Both C and D
ANSWER: a) Both A and B
3. Match the column
A) Taxes Paid ------------------ i) Cash flow from investing activities

B) Repayment of loans -------------- ii) Cash flow from operating activities
C) Sale of fixed assets ----------------------- iii) Cash Flow from financing activities
a) A-ii), B-iii), C-i)

b) A-i), B-ii), C-iii)
c) A-iii), B-i), C-ii)
ANSWER: a) A-ii), B-iii), C-i)
4. Cash payment to suppliers for services and goods is example of cash outflow.
a) True
b) False
ANSWER: b) False
5. For the calculation of cash flow from operating activities, payments and receipts
shown in Profit & Loss account are converted into payments and receipts actually in
cash.
a) True
b) False
ANSWER: a) True
6. For the calculation of cash flow from operating activities, payments and receipts
shown in Profit & Loss account are converted into payments and receipts actually in
cash by eliminating
a) Non-cash revenue from the revenue earned

b) Non-cash expenses from expenses incurred
c) Both a & b
7. While preparing Cash Flow Statement, non-cash items and non-operating items are not
required to be adjusted under________
a) Indirect method
b) Direct method
c) Both a & b
ANSWER: b) Direct method
8. Cash flow from sales is calculated by
a) Cash sales + Cash Collections

b) Sales + Opening debtors+ Opening B/R –Closing Debtors – Closing B/R
c) Both a and b
9. Cash outflow on purchases is calculated by
a) Purchases + Opening Creditors + Opening B/P –Closing Creditors-Closing B/P

b) Purchases + Opening Creditors - Closing Creditors +Closing B/P
c) Purchases - Opening Creditors - Opening B/P + Closing Creditors +Closing B/P
ANSWER: a) Purchases + Opening Creditors + Opening B/P –Closing Creditors-

Closing B/P
10. The amount of operating expenses which are actually been paid in cash are shown
under:
a) Cash flow from sales

b) Cash outflow on purchases
c) Cash outflow on expenses
d) All of above are false

ANSWER: c) Cash outflow on expenses
11. Given salary expenses Rs 40,000, Outstanding in the beginning of the year: Rs 5,000
and outstanding at the end of the year Rs 10,000. Cash outflow on salary will be:
a) Rs 45,000
b) Rs 35000
c) Rs 55,000
d) Rs 15,000
ANSWER: b) Rs 35000
12. In indirect method, net cash flow from operating activities is calculated on the basis
of
a) Net Profit after tax

b) Net profit before tax
c) Both and b
ANSWER: b) Net profit before tax
13. Which of the following are added to net profit after tax and extraordinary items to
reach to net profit before tax and extraordinary items?
A) Provision for tax made during the year

B) Proposed dividend made during the year
C) Interim dividend
D) Transfer to General reserves and other reserves
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C and D
1. Which of the following are cash flow from investing activities?
A) Interest received
B) Dividend received
C) Sale of fixed assets
D) Purchase of fixed assets
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C and D
2. Which of the following are cash flow from financing activities?
A) Interest received
B) Dividend received
C) Interest paid
D) Dividend paid
a) Both A and B
b) Both A and C
c) Both C and D
d) A, B, C and D
ANSWER: c) Both C and D

3. Acquisition and disposal of long term assets is included in
a) Cash flow from investing activities

b) Cash flow from financing activities
c) Cash flow from operating activities
ANSWER: a) Cash flow from investing activities
4. Which of the following statements represent example of cash flow from investing
activities?
a) Cash advances and loans made by financial enterprises

b) Cash advances and loans made to third parties
c) Both a and b
ANSWER: b) Cash advances and loans made to third parties
5. ABC Ltd had investment of Rs 68,000 as on 31.3.2013 and investment of Rs 56,000 as

on 31.3.2014. During the year ABC Ltd sold 40% of its investments being held in the
beginning of period at a profit of Rs 16,800. Determine cash flow from investing
activities.
a) Rs 59,200
b) Rs 28,800
c) Rs 72,800
ANSWER: b) Rs 28,800
6. Financing activities brings changes in
a) Size and composition of owner’s equities

b) Borrowing of the enterprise
c) Both a and b
7. For year 2013 Equity Share Capital is Rs 3,00,000 Preference Share Capital is 1,00,000
10% debentures is 2,00,000 and Share premium is 30,000. For year 2014 Equity Share
Capital is Rs 4,00,000 Preference Share Capital is 60,000 10% debentures is 1,00,000 and
Share premium is 40,000. Also given, Dividend paid on shares Rs 15,000 and Interest
paid on debentures RS 20,000. Determine net cash flow from financing activities.
a) Cash inflow of Rs 65,000

b) Cash outflow of Rs 65,000
c) Cash inflow of Rs 56,000
d) Cash outflow of Rs 56,000
ANSWER: b) Cash outflow of Rs 65,000
1. As per AS-3, Cash Flow Statement is mandatory for
A) All enterprises
B) Companies listed on a stock exchange
C) Companies with a turnover of more than Rs 50 crores
a) Both A and B
b) Both A and C
c) Both C and B
ANSWER: c) Both C and B

2. Listed Enterprises need to prepare Cash Flow Statement only under indirect method.
a) True
b) False
ANSWER: a) True
3. In the case of financial enterprises, the cash flow resulting from interest and dividend
received and interest paid should be classified as cash flow from
a) Operating activities
b) Financing activities
c) Investing activities
ANSWER: a) Operating activities
4. In case of other enterprises cash flow arising from interest paid should be classified as
cash flow from ________ while dividends and interest received should be stated as cash
flow from ____.
a) Operating activities, financing activities

b) Financing activities, investing activities
c) Investing activities, operating activities
ANSWER: b) Financing activities, investing activities
5. Issue of bonus shares and conversion of debentures into equity are shown as a
footnote to the Cash Flow Statement.
a) True
b) False
ANSWER: a) True
6. When a fixed asset is bought as hire purchase, interest element is classified under
______ and loan element is classified under________.
a) Operating activities, financing activities

b) Financing activities, investing activities
c) Investing activities, operating activities
ANSWER: b) Financing activities, investing activities
7. Which of the following statements are false?
A) Old Furniture written off doesn’t affect cash flow.

B) Cash flow statement is a substitute for cash account.
C) Appropriation of retained earnings is not shown in Cash flow statement.
D) Net cash flow during a period can never be negative.
a) A, B, C
b) B, C, D
c) C, D, A
ANSWER: b) B, C, D
8. Which of the following is not a cash inflow?
a) Decrease in debtors
b) Issue of shares
c) Decrease in creditors
d) Sale of fixed assets
ANSWER: c) Decrease in creditors
9. Which of the following is not a cash outflow?
a) Increase in Prepaid expenses

b) Increase in debtors
c) Increase in stock
d) Increase in creditors
ANSWER: d) Increase in creditors
1. Which of the following is a conventional method of ascertaining cost?
a) Absorption costing
b) Full Costing
c) Both a & b
2. Under absorption costing, profit is ascertained
a) On the basis of difference between sales and total cost.

b) By computation as per desired rate of profit on sales or cost
c) Both a and b
3. All costs are classified under ______ segments under absorption costing.
a) Five
b) Six
c) Four
d) Three
ANSWER: d) Three
4. All factory costs are treated as _________ while all administration costs are treated as
___________.
a) Product costs, Period costs

b) Period Costs, Product costs
c) Fixed costs, Period costs
d) Period costs, fixed costs
5. While ascertaining gross profit under absorption costing, only that portion of
manufacturing overheads is deducted from sales revenue which is associated with the
goods sold.
a) True
b) False

ANSWER: a) True
6. Under absorption costing among fixed expenses
a) Fixed manufacturing expenses are included in unit cost

b) Fixed non-manufacturing expenses are included in unit cost
c) Both a and b
ANSWER: a) Fixed manufacturing expenses are included in unit cost
7. Absorption costing is used for
a) Price determination on basis of full cost

b) Solution of separation of costs
c) Calculation of gross and net profit
d) All of the above
ANSWER: a) Price determination on basis of full cost
8. Absorption costs helps in
a) Difference between product cost and period cost

b) Charged of fixed factory overheads on inventory
c) Both a and b

A) Absorption costing helps in preparation of fixed budget.
B) Absorption costing is dependent on level of level of output.
C) Absorption costing is very helpful in taking managerial decisions.
D) Absorption costing helps to conform with accrual and matching concept.
a) A and B
b) B and C
c) A and D
d) B and D
ANSWER: d) B and D
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Marginal Costing - MCQs with answer

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Marginal Costing - MCQs with answer
1. Fixed expenses decrease per unit with the increases in production and increases per
unit with the decrease in production.
a) True
b) False
ANSWER: a) True
2. Marginal costs is taken as equal to
a) Prime Cost plus all variable overheads

b) Prime Cost minus all variable overheads
c) Variable overheads
3. If total cost of 100 units is Rs 5000 and those of 101 units is Rs 5030 then increase of
Rs 30 in total cost is
a) Marginal cost
b) Prime cost
c) All variable overheads

ANSWER: a) Marginal cost
4. Marginal cost is computed as
a) Prime cost + All Variable overheads

b) Direct material + Direct labor + Direct Expenses + All variable overheads
c) Total costs – All fixed overheads
d) All of the above
ANSWER: a) Prime cost + All Variable overheads
5. Marginal costing is also known as
a) Direct costing
b) Variable costing
c) Both a and b

A) Marginal costing is not an independent system of costing.
B) In marginal costing all elements of cost are divided into fixed and variable components.
C) In marginal costing fixed costs are treated as product cost.
D) Marginal costing is not a technique of cost analysis.
a) A and B
b) B and C
c) A and D
d) B and D
ANSWER: a) A and B
7. While computation of profit in marginal costing
a) Total marginal cost is deducted from total sales revenues

b) Total marginal cost is added to total sales revenues
c) Fixed cost is added to contribution
ANSWER: a) Total marginal cost is deducted from total sales revenues

8. Which of the following are the assumptions of marginal costing?
A) All the elements of cost can be divided into fixed and variable components.
B) Total fixed cost remains constant at all levels of output.
C) Total variable costs varies in proportion to the volume of output.
D) Per unit selling price remain unchanged at all levels of operating activity.
a) A and B
b) B and C
c) A and D
d) A, B C and D
ANSWER: d) A, B C and D
1. "Shareholder wealth" in a firm is represented by:

the number of people employed in the firm.
the book value of the firm's assets less the book value of its liabilities.
the amount of salary paid to its employees.
the market price per share of the firm's common stock.

2. The long-run objective of financial management is to:
maximize earnings per share.
maximize the value of the firm's common stock.
maximize return on investment.
maximize market share.
3. What are the earnings per share (EPS) for a company that earned $100,000 last
year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in
retained earning at the year end?
$100,000
$6.00
$0.50
$6.50
4. A(n) would be an example of a principal, while a(n) would be an example

of an agent.
shareholder; manager
manager; owner
accountant; bondholder
shareholder; bondholder
5. The market price of a share of common stock is determined by:

the board of directors of the firm.
the stock exchange on which the stock is listed.
the president of the company.
individuals buying and selling the stock.
6. The focal point of financial management in a firm is:

the number and types of products or services provided by the firm.
the minimization of the amount of taxes paid by the firm.
the creation of value for shareholders.
the dollars profits earned by the firm.

7. The decision function of financial management can be broken down into
the decisions.
financing and investment
investment, financing, and asset management
financing and dividend
capital budgeting, cash management, and credit management
8. The controller's responsibilities are primarily in nature, while the treasurer's

responsibilities are primarily related to .
operational; financial management
financial management; accounting
accounting; financial management
financial management; operations
9. In the US, the has been given the power to adopt auditing, quality control,
ethics, and disclosure standards for public companies and their auditors as well as
investigate and discipline those involved.
American Institute of Certified Public Accountants (AICPA)
Financial Accounting Standards Board (FASB)
Public Company Accounting Oversight Board (PCAOB)
Securities and Exchange Commission (SEC)
10. A company's is (are) potentially the most effective instrument of good

corporate governance.
common stock shareholders
board of directors
top executive officers
11. The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:

a series of corporate scandals involving Enron, WorldCom, Global Crossing,
Tyco and numerous others.
nline Interview Questions
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Financial Management MCQ & QUIZ
Financial Management MCQ Quiz & Online Test: Below is few Financial
Management MCQ test that checks your basic knowledge of Financial
Management abilities. This Financial Management Quiz & Online Test contains
questions 40 of multiple choice with 4 options. You have to select the right
answer to a question
Last Updated: Nov 21, 2020
Posted in Interview Questions
40 Questions
1. The cost of debt capital is calculated on the basis of _____________ .
 Net proceeds
 Annual Interest
 Annual Depreciation
 Capital
View Answer
The cost of debt capital is calculated on the basis of Annual Interest.
2. What is Factoring ?
 Production Plan
 New Financial Service
 Cost of Sales
 all of the above
View Answer
Factoring is a New Financial Service
3. Which of the following is the goal of financial management ?
 Maximise the wealth of Equity shareholders

 Maximise the wealth of Preference Shareholders
 Maximise the wealth of Debenture holders
 All of the above
View Answer
the goal of financial management is maximise the wealth of Equity shareholders.
4. ____________________ is the limitation of Traditional approach of

Financial Management
 More emphasis on long term problems

 Ignores allocation of resources
 One-sided approach
View Answer
All of the above
5. Financial management mainly focuses on ________________ .

 Efficient management of every business
 Brand dimension
 Arrangement of funds
 All elements of acquiring and using means of financial resources for
financial activities
View Answer
Financial management mainly focuses on all elements of acquiring and using means of
financial resources for financial activities.
6. Heterogeneous cash flows can be made comparable by Discounting

technique or Compounding technique.
 true
 false
View Answer
true
7. Which of the following is Capital market line ?
 Capital allocation line of a market portfolio

 Capital allocation line of a risk free asset
 Both 1 and 2
View Answer
Both 1 and 2, Capital allocation line of a market portfolio and Capital allocation line of a
risk free asset is Capital market line.
8. A risk free security has __________ variance.
 0
 2
 4
 6
View Answer
A risk free security has 0 variance.
9. ________________ is called as Dividend Ratio Method.
 Debt Equity Method

 Dividend Yield Method
 Equity Method
 Asset Method
View Answer
Dividend Yield Method is called as Dividend Ratio Method.
10. Ke = DPS/MP x 100, is used for -
 Reserve
 Calculating capital structure
 Depreciation
 calculating Cost of Equity Share Capital
View Answer
Ke = DPS/MP x 100, is used for calculating Cost of Equity Share Capital.
11. Which of the following is Capital Employed ?
 Cash + Bank
 Assets + Cash
 Shareholders Funds + Long Funds
View Answer
Capital Employed is Shareholders Funds + Long Funds.
12. The formula used to calculate current ratio is _______________ .
 Current liabilities / Current assets

 Current assets / Current liabilities
 Inventory / Current liabilities
 Current liabilities / Inventory
View Answer
The formula used to calculate current ratio is Current assets / Current liabilities.
13. _____________ is an example of fixed asset.
 Value stock
 Live stock
 Income stock
 none of these
View Answer
Live stock is an example of fixed asset.
14. Current assets are also referred to as _____________ .
 Inventory
 Working capital
 Livestock
 Investments
View Answer
Current assets are also referred to as Working capital.
15. Which of the following is short term Sources ?
 Bank Credit
 Public Deposit
 Commercial Paper
View Answer
All of the above
16. Investment is the employment of funds on assets to earn returns.
 true
 false
View Answer
true
17. Which of the following is the primary goal of financial management ?
 To Maximize the return

 To Minimize the risk
 To maximize the wealth of owners
 To maximize profit
View Answer
The primary goal of financial management is, to maximize the wealth of owners.
18. Which of the following are financial Assets ?
 Bonds
 Machines
 Stocks
 1 and 2
View Answer
Financial Assets are Bonds & Machines.
19. Savings Account are ____________ , but are not

__________________ .
 Negotiable, Liquid
 Liquid, Marketable
 liquid, Personal
 None of these
View Answer
Savings Account are Liquid, but are not Marketable.
20. _________________ is not a characteristic of investments .
 Pooled investments.
 Reduced expenses
 manage portfolios
View Answer
Reduced expenses is not a characteristic of investments .
21. What is Balance of Payment ?
 Foreign exchange inflow – Foreign exchange outflow

 Balance of trade + Net earnings on invisibles
 balance of current account + Balance of capital account + Statistical
discrepancy
 Export of goods – Import of goods
View Answer
Balance of Payment is Balance of current account + Balance of capital account +
Statistical discrepancy.
22. A capital investment is one that ___________ .
 applies only to investment in fixed assets

 has the prospect of long-term benefits.
 has the prospect of short-term benefits.
 is only undertaken by large corporations
View Answer
A capital investment is one that has the prospect of long-term benefits.
23. In finance, "working capital" means the same thing as -
 fixed assets.
 total assets.
 current assets
 current assets minus current liabilities.
View Answer
In finance, "working capital" means the same thing as current assets.
24. Liabilities varies inversely with profitability.

 true
 false
View Answer
false
25. Net working capital means -
 total assets minus fixed assets.

 current assets minus current liabilities
 current assets minus inventories
 current assets.
View Answer
Net working capital means current assets minus current liabilities.
26. The term "capital structure" indicates to _________________ .
 long-term debt, preferred stock, and common stock equity

 shareholders' equity
 total assets minus liabilities
View Answer
The term "capital structure" indicates to long-term debt, preferred stock, and common
stock equity.
27. Reserves & Surplus are __________________ of financing.
 Security Financing
 Internal Financing
 Loans Financing
 International Financing
View Answer
Reserves & Surplus are Internal Financing of financing.
28. What is an asset ?

 Inflow of funds
 Source of fund
 Use of fund
View Answer
An asset is use of fund.
29. Current ratio is 2:5.Current liability is Rs.30000.The Net working

capital is __________ .
 Rs.18,000
 Rs.(-) 45,000
 Rs.(-)18000
 Rs.45,000
View Answer
Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is Rs.(-)18000.
30. What is The ideal quick ratio ?
 2:1
 1:1
 5:1
 2.2
View Answer
The ideal quick ratio is 1:1 .
31. What is the focal point of financial management in a firm ?
 the creation of value for shareholders.

 the number and types of products or services provided by the firm.
 the dollars profits earned by the firm.
 investment, financing, and asset management
View Answer
The focal point of financial management in a firm is investment, financing, and asset
management.
32. Long period of bond maturity leads to _________ .
 stable prices
 more price change
 standing prices
 mature prices
View Answer
Long period of bond maturity leads to more price change.
33. The price per ratio is divided by cash flow per share ratio, is used for
calculating _________________ .
 Divided to Stock ratio

 Cash flow to price ratio
 sales to growth ratio
 price to cash flow ratio
View Answer
The price per ratio is divided by cash flow per share ratio, is used for calculating price to
cash flow ratio.
34. The Companies that help to set benchmarks are classified as-
 Competitive Companies
 Benchmark Companies
 Analytical Companies
 Return Companies
View Answer
The Companies that help to set benchmarks are classified as Benchmark Companies.
35. If the profit margin is equal to 4.5% and the total assets turnover is
1.8% then the return on assets Dupont Equation would be ________.
 0.025
 0.023
 0.081
 None of these
View Answer
If the profit margin is equal to 4.5% and the total assets turnover is 1.8% then the return
on assets Dupont Equation would be 0.081.
36. In Capital Budgeting, the positive net present value results in -
 Negative Economic Value Added

 Positive Economic Value Added
 Zero Economic Value Added
 Percent Economic Value Added
View Answer
In Capital Budgeting, the positive net present value results in Positive Economic Value
Added.
37. The Cash outflows are the costs of project and are represented by
___________ .
 Negative Numbers
 Positive Numbers
 Hurdle Numbers
 Relative Numbers
View Answer
The Cash outflows are the costs of project and are represented by Negative Numbers.
38. The Cash inflows are the revenues of project and are represented by
-
 Relative Number
 Negative Number
 Hurdle Number
 Positive Number
View Answer
The Cash inflows are the revenues of project and are represented by Positive Number.
39. The Long period of bond Maturity lends to -
 Stable Prices
 More Price change
 Standing Prices
 Mature Prices
View Answer
The Long period of bond Maturity lends to More Price change.
40. The bond issued by corporations and exposed to default risk are
classified as _____________ .
 Default Bonds
 Corporation Bonds
 Risk Bonds
 Zero Risk Bonds
View Answer
The bond issued by corporations and exposed to default risk are classified as Corporation
Bonds.

ANSWER: A) Wealth Maximization

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